Ideology

Roland Benabou

No 3416, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: I develop a model of ideologies as collectively sustained (yet individually rational) distortions in beliefs concerning the proper scope of governments versus markets. In processing and interpreting signals of the efficacy of public and market provision of education, health insurance, pensions, etc., individuals optimally trade off the value of remaining hopeful about their future prospects (or their children’s) versus the costs of misinformed decisions. Because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial, endogenous social cognitions emerge. Thus, an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them, embracing a statist ideology and voting for an excessively large government. Conversely, an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez-faire ideology and blind faith in the invisible hand. With public-sector capital, this interplay of beliefs and institutions leads to history-dependent dynamics. The model also explains why societies find it desirable to set up constitutional protections for dissenting views, even when ex-post everyone would prefer to ignore unwelcome news.

Keywords: institutions; wishful thinking; cognitive dissonance; laissez-faire; statism; ideology; political economy; psychology (search for similar items in EconPapers)
JEL-codes: D72 D83 H11 P16 Z1 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-03
New Economics Papers: this item is included in nep-cdm and nep-pol
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Published - published in: Journal of the European Economic Association, 2008, 6 (2-3), 321-352

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Working Paper: Ideology (2008)
Working Paper: Ideology (2008)
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